SECTION 3. SUSPENSION AND

REVOCATION OF CPEO CERTIFICATION

.01 In general . The IRS may suspend and/or revoke the certification of any CPEO as a result of one or more failures to comply with any of the requirements for CPEOs described in sections 3511 and 7705 of the Code, the regulations thereunder, Rev. Proc. 2016–33, Notice 2016– 49, this revenue procedure, and any other guidance issued by the IRS applicable to CPEOs, and will do so if the IRS determines, in its sole discretion and based on a review of the relevant facts and circumstances, that one or more of such failures present a material risk to the IRS’s collection of federal employment taxes. Section 3.02 of this revenue procedure provides examples of specific failures that may result in the issuance of a notice of suspension and proposed revocation, the consequences of which are described in section 3.03(1) of this revenue procedure. A CPEO may request review of the proposed revocation, in the manner described in section 3.03(2) of this revenue proce

Bulletin No. 2017–3 433 January 17, 2017

dure, which may result in the lifting of the suspension or the issuance of a notice of final revocation. Consequences of revocation of certification are described in section 3.09 of this revenue procedure.

.02 Specific failures resulting in sus- pension and proposed revocation . Specific circumstances that may result in suspension and proposed revocation of certification include, but are not limited to—

(1) A failure to timely complete an annual verification, timely submit annual audited financial statements and an accompanying CPA opinion, or timely submit a quarterly assertion, attestation, or working capital statement, as provided in sections 2.02, 2.04, and 2.05 of this revenue procedure;

(2) A failure to maintain a bond or bonds in the required bond amount, as provided in section 2.03 of this revenue procedure;

(3) A failure to satisfy the reporting requirements provided in section 2.06 of this revenue procedure, including a failure of the CPEO or a responsible individual of the CPEO to notify the IRS of a material change (as provided in sections 2.06(3) and 2.06(4) of this revenue procedure);

(4) The charging or conviction of the CPEO, or a related entity or a responsible individual of the CPEO, with or for any criminal offense under the laws of the United States or a state or political subdivision;

(5) The CPEO, or a related entity or a responsible individual of the CPEO, being the subject of an active IRS criminal investigation;

(6) A failure (other than an immaterial and isolated failure that does not reflect a meaningful lapse in compliance with federal employment tax withholding and deposit requirements) by the CPEO or any responsible individual to pay any applicable federal, state, or local taxes or file any required federal, state, or local tax or information returns in a timely and accurate manner, unless the failure is determined to be due to reasonable cause and not due to willful neglect;

(7) The assessment of fraud penalties against the CPEO or any of its responsible individuals or related entities by the IRS or another tax authority; and

(8) The discovery of any errors or omissions in any annual audited financial statements or working capital statements previously submitted to the IRS in accordance with sections 2.04 and 2.05 of this revenue procedure, sections 2.05 and 2.06 of Rev. Proc. 2016–33, and §§ 301.7705–2T(e) and (f), that would require a restatement of previously submitted statements.

.03 Notice of suspension and proposed revocation . If the CPEO program office determines that suspension and proposed revocation of certification is appropriate, the IRS will issue a notice of suspension and proposed revocation to the CPEO that will explain the reason(s) for and consequences of the suspension and proposed revocation, as described in section 3.03(1) of this revenue procedure, and advise the CPEO of its opportunity to request review of the proposed revocation, as described in section 3.03(2) of this revenue procedure. The CPEO’s suspension is effective as of the date on the notice.

(1) Consequences of suspension of cer- tification . Within 10 days of the date of the notice of suspension and proposed revocation, the CPEO must provide written notice to its customers of its suspended status. Moreover, the IRS will include the suspended CPEO in the published list of suspended CPEOs, available on www.irs. gov, and may also individually notify the CPEO’s customers of the suspension. A CPEO that has received a notice of suspension and proposed revocation is still responsible for meeting all applicable certification requirements contained in the regulations and this revenue procedure. However, section 3511 of the Code will not apply to any new CPEO contract (not including modifications or extensions to existing contracts) that the CPEO enters into while its certification is suspended. Notwithstanding the foregoing, any new CPEO contract entered into while the CPEO’s certification is suspended is still subject to the applicable provisions of sections 2.06(1), (2), and (6) of this revenue procedure, which restate requirements stated in § 31.3511–1(g) of the proposed regulations, assuming such contract otherwise constitutes a service agreement described in § 31.3504–2(b)(2).

(2) Request for review of proposed re- vocation . A notice of suspension and proposed revocation, in accordance with this section 3.03, will advise the CPEO of its opportunity to request review of the proposed revocation. To request a review, the CPEO must submit to the CPEO program office identified in the notice of suspension and proposed revocation, within 30 days of the date of the notice and in the manner prescribed by the notice, a written request for review that contains a statement of the facts, law, and arguments in support of the CPEO’s position, including a description of the actions it has taken, is taking, or intends to take to cure the failure(s) identified in the notice (if possible) and to prevent the failure(s) from reoccurring. The arguments in support of the CPEO’s position should focus on the factual information being provided by the CPEO concerning its failure(s) to comply with the requirements for CPEOs and/or on the factual information being provided as evidence disputing any underlying facts on which the IRS based its conclusion, as well as on the actions it has taken or intends to take to cure the failure(s) (if possible) and to prevent the failure(s) from reoccurring. Although arguments concerning whether the actions the CPEO has taken or intends to take have cured or will cure the failure(s) (if possible) and will prevent the failure(s) from reoccurring are appropriate for the CPEO to make in its request for review, arguments concerning whether the failure(s) presented or continue to present a material risk to the IRS’s collection of federal employment taxes are outside the scope of review and will not be considered.

.04 Notice of final revocation issued if no request for review of the proposed re- vocation is submitted . If the CPEO does not timely submit a request for review of the proposed revocation in accordance with section 3.03(2) of this revenue procedure, a notice of final revocation will be issued to the CPEO by the CPEO program office.

.05 How the IRS handles a request for review of the proposed revocation . The CPEO program office will first review the request.

(1) If the CPEO program office finds that the CPEO’s actions have cured or will cure the failure(s) (if possible) and will

January 17, 2017 434 Bulletin No. 2017–3

prevent the failure(s) from reoccurring, the suspension will be lifted. The CPEO program office will provide to the CPEO written notice of this finding that will include the date the suspension is lifted. Section 3511 of the Code will apply to any new CPEO contract that the CPEO enters into on or after the date the suspension is lifted. However, section 3511 of the Code does not apply to any CPEO contract that the CPEO entered into while it was suspended. The IRS will remove the listed CPEO from the published list of suspended CPEOs as soon as practicable, but no later than the next update of the list that occurs after the suspension is lifted.

(2) If, upon review of the CPEO’s request for review of the proposed revocation, the CPEO program office determines that the CPEO’s actions have not cured or will not cure the failure(s) and will not prevent the failure(s) from reoccurring, it will forward the notice of suspension and proposed revocation, the CPEO’s request for review, and all accompanying supporting documentation to the IRS Office of Professional Responsibility (OPR).

.06 Consideration by OPR . If the request for review of the proposed revocation is forwarded to OPR, OPR will consider the CPEO’s request for review. OPR will apply an abuse-of-discretion standard to its review, and if, applying this standard, OPR finds that the CPEO program office erred in proposing revocation or in determining that the CPEO’s actions have not cured or will not cure the failure(s) and will not prevent the failure(s) from reoccurring, the CPEO’s certification will not be revoked, and its suspension will be lifted. OPR will provide written notice of its finding to both the CPEO and the CPEO program office, which will include the date the suspension is lifted. As of the date the suspension is lifted, the CPEO will be restored to full status as a CPEO, section 3511 of the Code will once again apply to any new CPEO contract that the CPEO enters into. However, section 3511 of the Code does not apply to any CPEO contract that the CPEO entered into while it was suspended. The IRS will remove the listed CPEO from the list of suspended CPEOs as soon as practicable, but no later than the next update of the list that occurs

after the suspension is lifted. If OPR finds no abuse of discretion, OPR will provide written notice of its finding to both the CPEO and the CPEO program office and will issue a notice of final revocation to the CPEO, which is described in section 3.08 of this revenue procedure. .07 A request for review may be with- drawn . A CPEO may withdraw its request for review of the notice of proposed revocation before OPR provides written notice of its finding to the CPEO. A request for review may be withdrawn only upon the written request of the CPEO. Upon receipt of the CPEO’s withdrawal request, the IRS will issue a notice of final revocation.

.08 Notice of final revocation . The notice of final revocation will incorporate by reference the notice of suspension and proposed revocation (including an explanation of the reason(s) for the suspension and proposed revocation) and explain the consequences of revocation of certification, as described in section 3.09 of this revenue procedure. If the CPEO requested review of the proposed revocation (and did not withdraw its request for review), the notice of final revocation will also include additional discussion of the IRS’s rationale for revocation of certification in response to arguments made in the CPEO’s request for review. The notice of final revocation will state the effective date of the revocation.

.09 Consequences of revocation . A CPEO is no longer a CPEO as of the effective date of revocation stated in the notice of final revocation, and the provisions of section 3511 of the Code no longer apply to the organization as of that date. Unless otherwise stated in the notice of final revocation, within 10 days after the date of the notice of final revocation and no less than 30 days before the effective date of revocation, the CPEO must provide written notice to each of its customers that the CPEO’s certification has been revoked, that the provisions of section 3511 of the Code no longer apply to the customer’s relationship with the CPEO, and that the customers may also be liable (as of the effective date of revocation) for federal employment taxes imposed on remuneration remitted by the CPEO to all employees covered by the customer’s contract with the CPEO. Moreover, the IRS will include the CPEO

in the published list of revoked CPEOs, available on www.irs.gov, as soon as practicable, but no later than the next update of the list that occurs after the effective date of revocation, and may also individually notify the CPEO’s customers of the revocation. The former CPEO may not reapply to be certified as a CPEO until one year has passed after the effective date of its revocation.